San Bernardino is 3rd California city to seek bankruptcy in a month

The City Council voted to move forward with bankruptcy on Tuesday night, saying the financial situation had become so dire that it could not cover payroll through the summer. The unexpected vote came at the suggestion of the interim city manager, who said the city faced a $46-million deficit and depleted coffers.

"We have an immediate cash-flow issue," Andrea Miller told the mayor and seven-member City Council.

The expected bankruptcy for the city of 209,000 is certain to heighten concerns about the fiscal forecast for other struggling California cities, which have been slashing jobs and services as tax revenues have declined during the prolonged economic slump.

Stockton, a Central Valley agricultural hub with pockets of entrenched poverty, tried to remake itself during the last decade as a refuge for former San Francisco Bay Area residents. It spent money on a marina, a high-rise hotel and a promenade. They flopped.

Residents also got swept up in the boom years, snapping up new tract homes on the city's outskirts. Soon, many of them were empty, victims of the nationwide foreclosure crisis.

Tax collection plummeted and the city struggled to pay its debts. It also sized up its labor contracts and declared them unsustainable. Last month — after a lengthy period of mediation — the Stockton City Council voted to stop bond payments, gut employee health and retirement benefits, and squeak by on a spartan budget.

"This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens," Mayor Ann Johnston said in a statement when the city filed its bankruptcy paperwork.

Days later, the High Sierra town of Mammoth Lakes — population: 7,700 — also filed for bankruptcy protection. Its plight had little to do with the recession.

Officials said the town could not afford to pay a $43-million breach-of-contract judgment in a lawsuit brought by a developer. That amount is nearly three times the size of Mammoth Lakes' annual operating budget.

In 1997, the town signed an agreement with Mammoth Lakes Land Acquisition to make improvements to a nearby airport's fixed-base operations. In return, the company would get rights to develop a large hotel project at the airport and an option to buy the land.

But in 2007, the town changed its priorities and refused to move forward with the hotel project until some Federal Aviation Administration issues were resolved. The developer filed suit and won.

In San Bernardino, Mayor Patrick Morris called Wednesday night's decision, passed on a 4-2 vote, a "stain" on the city. But he said the only other option was "draconian cuts" to all city services, including the police and fire departments.

"It means the bills will be paid," said a dejected Morris, who is not a voting member of the council.

The city's fiscal crisis has been years in the making, compounded by the nation's crushing recession and exacerbated by escalating pension costs, lucrative labor agreements, Sacramento's raid on redevelopment funds and a city reserve that is tapped out, officials said.

Miller told the council that the city faced major deficits for the next five years.

The deficits remain even after the city negotiated $10 million in concessions from employees and slashed its workforce 20% over the last four years.